High grain prices having far-reaching impact

I’m generally in favor of a free market. I’m glad commodity prices are good — farmers need a chance to make a little money. I don’t even mind so much that gas is over $3.00 per gallon — should spur the American public to get behind serious efforts to develop an alternative energy source.

But when high grain prices affect the price of my Friday afternoon pizza and beer, perhaps we’ve gone too far in our re-structuring of the agricultural industry.

It’s been widely reported that wheat is in short supply and prices are artificially erratic and they are high ($25 per bushel on the Minneapolis Grain Board). Wheat stocks are lower than any time since the post WWII days — and going down.

Corn prices remain high, even though many analysts supposedly in the know said this was a temporary thing. At $5.65 a bushel in March 2008, it looks more like a permanent thing. Not only does the high price of corn negatively impact the price of cheese, but it may push gas prices…..up. And, if the drought-plagued 2007 is any indication, it may cost farmers money, too.

The high cost of corn created higher prices for anything fueled by corn — cows, pigs, automobiles — things like that. Those high prices eventually filtered down to dairy products — of particular concern to me is cheese.

High cheese prices and a corresponding lack of a steady supply drove the price of pizza up by about 25 percent in 2007. Don’t sneer, pizza is a $30 billion business in the United States of America. More importantly it drove the price of pizza at our favorite pizza palace up by a dollar a slice.

The cheese crisis in pizza was miniscule compared to the ‘brewing’ crisis with wheat. Crust makes up the bulk of any good pizza, and for the few city folk who don’t know it, that crust comes from wheat. Since we are a wheat-exporting nation (about 40 percent last year) that means U.S.-grown wheat. U.S-grown wheat that routinely trades for $3-$4 per bushel and is currently pushing $12 a bushel.

Not only have corn and wheat prices and the euphoria over making lots of money growing these crops driven the price of pizza up, the related drop in hops production and consistently low harvest yields are driving some smaller brewing companies, not to mention many micro-brewers, out of business.

Therein lies the crux of my problem with this whole new arena of grain shortages and high prices. For the past 15 years or so, every Friday when in town I eat lunch at the same pizza place with the same group of former university colleagues and magazine editors. On occasion we’ll order a beer to go with our pizza. In such rare events, the local beer of choice is Woodpecker Ale. Upon ordering a round last Friday, we were told that the local brewery that produces the beer had raised prices too high — because of the hops shortage — for the pizza parlor to buy it.

No less venerable and reliable a news source than Fox News reports: “Small brewers from Australia to Oregon face the daunting prospect of tweaking their recipes or experimenting less with new brews thanks to a worldwide shortage of one key beer ingredient (hops) and rising prices for others.

Oh, and one other thing: Beer prices are likely to climb. How high is anybody's guess. Craft brewers don't have the means to hedge against rising prices, like their industrial rivals. "I'm guessing, at a minimum, at least a 10 percent jump in beer prices for the average consumer before the end of the year," said Terry Butler, brewmaster at central Washington's Snipes Mountain beer (no doubt the West Coast equivalent of Woodpecker Ale).”

As with most world problems, we laid the brunt of the cause of this local tragedy at the feet of George W. Bush — our favorite whipping boy. Who, as one group member puts it is, “the man who left the world with one village short of an idiot.” But, upon further review, we found that this tragedy is non-political. We can’t lay the blame on President Bush, nor Hillary or Barack, not even the venerable John McCain. Nope, this one comes down to a pair of frequently wicked women: Mother Nature and La Nina and a host of very greedy investors.

Poor wheat harvests in many parts of the world over the past two growing seasons reduced wheat supplies significantly. This, some contend, is a direct result of La Nina, which tends to provide too much rain in localized areas, but generally acts as a drying agent — in agricultural terms — a drought.

For our part, those of us with miniscule amounts of money in investment portfolios (like teacher retirement funds) may be shocked to know that several of the nation’s largest banking and investment firms have seen fit to dump millions of dollars in the grain market. They, — we — seem to be able to pay exorbitantly high prices for grain, knowing the weak dollar will make it attractive to overseas buyers. That bakers and small pizza parlors can’t afford wheat that trades for much over $7 a bushel is of little concern. Niether is eliminating U.S. grain buyers who provide a critical part of the tough underbelly of agriculture that we frequently refer to as ‘infrastructure’.

Our Friday lunch group has considered moving to a less troubled venue, but then again sushi is not quite us. Besides, leaving would give us one less world issue to solve. We will stick with it, Woodpecker Ale or not, and hope the pizza parlor can follow suit.